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Aguia Resources finds profitable gold-phosphate path to redemption


Aguia Resources executive chairman Warwick Grigor inspecting a potential processing facility purchase in Southern Brazil.

A year ago, ASX-listed Aguia Resources (ASX: AGR) looked, for all money, a goner.


The company’s Tres Estrades phosphate deposit in Southern Brazil – a flagship project with only a modest capital expenditure required to get it into production – had been bogged down for more than two years in legal wranglings over spurious environmental activist claims. There was no end in sight and money was running out fast.


Then late last year, management reached out for some much-needed external advice and found it from commodity-savvy veteran mining analyst Warwick Grigor. After some deep soul-searching, the company has now mapped out a plan to deliver strong early cashflow from its high-grade Santa Barbara gold mine in Columbia to provide much of the cash needed to fire up its organic phosphate operations in Southern Brazil.


But from the start, Aguia’s immediate need was cash to prop up its failing balance sheet and a quick $500,000 raise was arranged together with a one-for-four renounceable rights issue for an additional $1.5 million.


Not surprisingly, the rights issue came up short. After all, who wanted to put in more good money after bad.


Some quick thinking was required before the whole thing went pear-shaped.


Fortunately, Grigor – now the executive chairman of Aguia – knows more than just a little about South American mining and had recently looked at Andean Mining, another small ASX-listed company with Columbian gold assets.


Andean had previously excavated a 200m adit as an exploratory tunnel at its main project, the Santa Barbara mine, and had used the ore to put through a 30-tonne per day pilot processing plant. Recovering 20 grams per tonne gold, the mine showed plenty of promise.


So, once the rights issue shortfall was placed and a management shuffle had been completed, Grigor and his fellow directors decided on a radical plan to make an all-script offer for Andean in December last year in a bid to secure ownership of the project.


After completion in June, the team quickly set about working on an optimisation plan for Santa Barbara and delivered a message to the market that output could be increased to 50 tonnes a day for a relatively small outlay of $2.5 million in capital expenditure and it could then produce 10,000 to 12,000 ounces per annum at a cost of US$300 (A$449) to US$400 (AU$600) per ounce. For a further modest capex amount, the plant could then be upgraded to 250 tonnes per day.


Additionally, the company intends to execute a drilling program that will deliver a maiden JORC-compliant resource, with expectations that the mine will be producing again by the end of next year’s first quarter, bringing in much needed cashflow.


According to Grigor, the real story of Aguia, though, is its Tres Estrades organic phosphate project – which seems understandable on the back of an announcement the company made on Wednesday.


Management told the market that it is in advanced discussions to lease or buy an existing processing plant that sits about 100km from the Tres Estrades mine site. The plant has been used for processing limestone, but with the exhaustion of the local supply of ore, the owners have decided to sell.


For a capex of less than $5 million, management has identified only minor upgrades required for it to repurpose the facility, including the addition of a rotary kiln and a bagging facility to the existing circuit.


The Tres Estrades organic phosphate project in Southern Brazil involves a remarkably simple mining and production process. This may be one of the best projects I have ever come across.
Aguia Resources Executive Chairman Warwick Grigor

It could be a hugely significant moment for the company and the project, given the exasperating previous two years that it has endured through legal challenges from non-government organisations (NGOs) opposing the construction of a processing facility at site. Importantly, those challenges – which are yet to even get past the “application for an injunction” stage and could yet take years to settle – have been applied for against the construction of a processing facility at mine site and not the mining itself.


It means that should Aguia’s deal to lease and buy be successful, in one fell swoop management could neatly sidestep a further prolonged legal battle and can move forward to early production by the middle of next year. The company then expects to be able to work to a timeline of around mid-next year to start production.


A bankable feasibility study conducted on Tres Estrades by Aguia in March last year concluded that by producing 300,000 tonnes per annum in an 18-year mine life, with capital expenditure of $26 million, the project would spit out $22 million a year in EBITDA. The payback period is anticipated to be 2.9 years on the back of a 54.7 per cent internal rate of return (IRR).


Impressive as these numbers may be, a deal to buy the processing plant would not only reduce the capex by 75 per cent, but the payback would also shrink to less than nine months.


The main market for phosphate is in agricultural use. Aguia’s organic product, marketed under the brand name of Pampafos, has been exhaustively assessed on different crops around the world during the past four years and has consistently performed or outperformed against other commonly-used chemical fertilisers.


It is also well regarded by local farmers as suitable for use on their own crops.


Currently, Southern Brazil meets its phosphate demand entirely from imports, mainly Morocco, at long-term contract pricing of about $400 per tonne.


Not surprisingly, Aguia has been in active discussions with local farmers who like the product and is looking to set a price of about $140 per tonne. Even if an additional $15 per tonne trucking cost was factored in as part of the new plan, taking total costs to $50 per tonne, the company could still maintain a healthy margin.


And Aguia believes that the 300,000 tonnes per annum production, being 15 per cent of local demand, would be easily saleable into a market within a 300km radius.


With two projects that could be slated for production startup within the next 12 months, Aguia has a busy time ahead. The company has a strong local and head office management team in place and now, finally appears to have a solid plan for generating early cashflow.


Until recently, it has been an ugly few years for Aguia, but positive change seems to be on the horizon. Shortly, perhaps, it will be able to prove up the old adage that “Sometimes, the best things come to those who wait”.


Is your ASX-listed company doing something interesting? Contact: office@bullsnbears.com.au

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